Creador brews 2x return on OldTown

OldTown went public in 2011 but India and Southeast Asia-focused GP Creador felt the company was undervalued. It bought a 10% stake in the company for MYR45.7 million ($15 million) in April 2012 and last week sold just under half its position for $15 million to a group of long-only mutual fund providers, generating a quick-fire 2x money multiple. The IRR is 101%.

Creador's investment came after it explored around 30 retail chains in China and Southeast Asia. "We got to meet each one and understand what their strategy was, what their results were, we looked at the stores and the concept," says Brahmal Vasudevan, the private equity firm's CEO. "When we put it all together we found OldTown was the best target out there with the right concept and prospects."

OldTown currently has stores in Malaysia, Singapore and Indonesia. The company's brand of instant coffee is also the sold in Hong Kong where it has a 16% market share compared to 12% in its native Malaysia. In 2012, the company reported revenues of MYR333 million and net a profit of MYR44 million.

At the time of investment, OldTown's stock was trading at a price-to-earnings multiple of 11x, which compared favorably to others recent deals in the space. KFC's Malaysian franchise, for example, was privatized by CVC Capital Partners and Johor Corp. at a valuation of around 20x. Creador wasn't seeking to control and reposition OldTown; it just wanted to help the company reach its goals faster.

"One of the most important things we did was to get OldTown better research coverage in the banking universe," says Vasudevan. "It was below the radar for most institutional investors but we got the news out and the story really resonated with a lot of investors and the company was re-rated." He will continue to look for investment opportunities among mid-cap companies that are overlooked by public market investors but can be scaled up to the point where they have a much stronger following on exit.

This was the first exit from Creador's maiden fund, and with a second fund already in the pipeline, the firm decided to realize some of OldTown's gains - but it deliberately stopped short of a full sale.

"We didn't do a full exit partly because it was a very good return - we doubled our money in a year," says Vasudevan. "We wanted to show some liquidity to our investors but we felt this company could double again in the next few years." 

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• Topics
• Southeast Asia
• Consumer
• Exits
• Exit
• Creador
• Consumer
• Growth capital
• Malaysia
• Indonesia
• Singapore